I need help determining the possible disadvantages of accepting this offer?
A manufacturing company requires a minimum order of $5,000 at cost, offers terms of 3/10, net 30, and does not provide transportation costs. Transportation costs may be estimated at approximately $4.50 per dozen garments. There is a rumor, however, that there may be a trucking strike at the manufacturing company by independent truck lines. The manufacturing company is willing to participate in a cooperative advertising program. This Los Angeles firm assures the merchandise will be in stock and available for reorder.
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The scenario that you propose clearly shows that the retailer may be in danger of losing money if they invest their earnings into the transportation costs. This is because such transportation company is not stable enough to provide consistent and reliable service, which will affect both accessibility and product sales.
Although a cooperative advertising program is a good idea in terms of advertisement, the reality is that whatever revenue is gathered from such advertisement has to be divided evenly between the manufacturer and the retailer. The manufacturer asks the retailer to advertise them and vice-versa. The situation may become complicated if the coop ad manufacturer imposes restrictive limitations as to what can or cannot be advertised. Moreover, if both parties do not agree on an advertisement scheme there may be issues that will slow sales as a result. The key is to investigate before hand and most importantly to not make any business negotiations with a manufacturing company that does not have previous experience with coop advertising.
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